1. Technical Field
The present disclosure generally relates to retirement investment products. More particularly, and without limitation, the present disclosure relates to methods and systems for providing guaranteed lifetime benefits and providing a financial product that combines features of mutual funds, annuities, and lifetime benefit guarantee insurance.
2. Background Information
Individuals save for retirement with various goals including obtaining a high rate of return on their investments and obtaining steady streams of income for many years or possibly for life.
Mutual funds, including target-dated mutual funds, provide investors an opportunity to increase the value of invested money or capital. Mutual funds, which are often invested in equities and bonds, provide the potential for a high rate of return on investments but do not protect investors from the risk of loss. Thus, individuals who invest in mutual funds may lose profits as well as their principal investments.
Annuities provide income at predetermined intervals for a fixed period. Annuities can be purchased by a single lump sum payment or through installment payments. Annuities provide a steady stream of income to an investor, but annuities may not provide investment growth sufficient to meet the needs of many investors.
Due to the large initial funding requirement for annuities (whether purchased by a lump sum payment or through installments), investors often have difficulty funding annuities. Many investors thus typically invest in mutual funds throughout their lives while working and then, at retirement, liquidate or rollover their accumulated assets to purchase annuities that will fund their retirement years. Such a plan has several disadvantages. By rolling assets from mutual funds to annuities, retirees can no longer participate in the financial market and are thus precluded from potential gains that the market may provide. Purchasers of annuities at retirement are also subject to the market conditions at the time of purchase. Furthermore, having to liquidate one financial product and purchase another financial product may be burdensome for some investors who do not have the time or expertise to research various annuity products, or cannot afford a financial advisor.
Moreover, many retirees face the possibility of outliving their retirement savings. Such retirees may need to purchase yet another product, e.g., longevity insurance. To address this problem, financial institutions offer a lifetime withdrawal guarantee, which is a form of insurance that provides a retiree with income for the life of the retiree. However, investors have not been able to purchase a financial product that provides the potentially high rate of return on investments of mutual funds, the steady stream of income payments similar to annuities, and a lifetime withdrawal guarantee such that the investors do not have to worry about outliving their investments.
In view of the foregoing, there is a need for improved methods and systems for providing guaranteed lifetime benefits, and in a particular, a financial product that addresses the drawbacks discussed above.